Advanced social-economic development territories

Information Agency Credinform has already addressed to the topic of special economic zones (SEZ) in Russia.

The term «advanced development territory» appeared in our economic dictionary in the early 90-ies of the last century, when the government approved the appropriate list of territories. The first law, regulating the foreign investment, was adopted in 1991. Pursuant to the law, it was assumed the following: visa-free regime, simplified procedure of registration of foreign businessmen, lower tax and customs duty rates, favorable long-term rent. Starting from 1996, SEZ began to be created, in particular, in Kaliningrad and Magadan Regions, Saint-Petersburg, within Baikal–Amur Mainline. Among 17 created zones only 6 became relatively successful. According to experts, adopted programs were not implemented and accomplished in full. However, despite the modest results, SEZ continued to evolve due to relative flexibility of fund raising tools. 

Next step was the entry into force on January 5, 2012 of the Federal Law № 392-FZ of December 3, 2011 "On the zones of territorial development in the Russian Federation and on modification of separate legal acts of the Russian Federation". Pursuant to the law, the term «territorial development zones» (TDZ) as a part of the subject of the Russian Federation was introduced; such zone assumes favorable environment for investors. In particular, the Government support was offered to investors and specially created administrations were responsible for the TDZ control. Now TDZ are active in 20 regions of the country.

The «favorable» regime concept of investment and business activity was further developed by entry into force on March 30, 2015 of the Federal Law № 473-FZ «On advanced social-economic development territories in the Russian Federation» adopted on December 29, 2014.

In contrast to SEZ and TDZ, except the development of regional economic sectors and attraction of major investment advanced social-economic development territories (ADT) are focused on the creation of favorable environment for the population. ADTs are formed for specific large investors under conditions of preliminary agreements with the authorized Federal body. The agreements must include the definition of the planned economic activities, the volumes of investment and the estimated number of working places. The period of ADT’s activity is 70 years with possible extension, 49 years for SEZ and 12 years for TDZ.

The formation of ADT is possible by the request of any subject of the Russian Federation, in contrast to TDZ, where the list of regions is approved by the Government of the Russian Federation. In ADTs it is allowed to develop the deposits of useful minerals and manufacture of excisable goods. Such activities are completely or partially forbidden in SEZ and TDZ.

During the first three years, ADTs will be formed only in the Far Eastern Federal district and on the territory of the mono-cities with the most difficult social-economic situation according to the list of the Government of the Russian Federation. Later the formation will be started in other regions.

Both individuals and legal entities can be the ADTs’ residents.The residents are provided with customs benefits, special tax treatment and simplified procedure of business dealing. For example, zero or not exceeding 5% profit tax rate, exemption from estate tax within first five years. There is also a possibility of expeditiously involvement of qualified foreign staff (without special permission and quotas).

 The number and duration of the inspections of resident activity are restricted by the order of the Government of the Russian Federation from October 22, 2015 of No. 1132 «About the joint scheduled inspections, which are carried out concerning residents of the advanced social-economic development territories by bodies, authorized on implementation of the state control (supervision), municipal control».

Management companies, which are approved by the Government of the Russian Federation, will be responsible for the development of necessary infrastructure and providing residents with tax, legal and other services on each territory. Only joint stock company (or its subsidiary) with 100% State participation can be the management company. JSC Corporation of the development of the Far East was approved as a management company of all ADTs in the Far Eastern Federal district. Special subcommittee of the Government Commission on social and economic development of the Far East and Baikal region is responsible for selection of territories and consideration of investment projects.

The Government of the Russian Federation has already approved the establishment of nine ADTs, including Kamchatka Region, Primorsk and Khabarovsk Territory, Amur Region, Yakutia and Chukotka.

According to experts, if «one state – two systems» concept will be created in Russia (similar to the system, operating in Hong Kong), the formation and full development of ADTs can become a reality. Then, our Far East will transform to fundamentally different territory (in contrast to other regions of the country) with special administrative and tax indicators. 

APEC or TPP: which is more important?

Asia-Pacific Economic Cooperation (APEC) was established in 1989. The organization includes 21 countries, the majority of which are located along the Pacific Ocean coastline. Up to November 1998 Russia has completed all procedures of entering the APEC. The strategic goal of the entrance is creation of the system of free and open trade and permissive investment conditions in the Asia-Pacific Region (APR) to 2020.

The regular annual APEC summit was held in the Philippines in November 2015. Presidents and governments’ executives of the APR discussed the international trade as a declared subject along with the following issues: ways of commercial relations further development; increasing competition between China and the USA; prospects of the Trans-Pacific partnership (TPP) which is extensively promoted by the USA; Chinese idea of the Free Trade Area of the Asia-Pacific (FTAAP) etc. 

Earlier it was noted that the TPP is a local partnership with the USA playing a key role. Russia and China are not considered as members of the partnership, despite their active role in the APR economy. Moreover, the government leaders were confused with the secrecy of negotiations. There are backgrounds to believe they were held under the USA pressure as a chance to announce about the established partnership prior to the APEC summit. That is why the TPP is considered as the USA’s tool of impact in the region and confrontation with China. Additionally, it is supposed the TPP members will get new possibilities of entering the APR markets. 

At the APEC forums China has marked the following FTAAP advantages: free trade zone (FTE) serves to the integration of regional economies and prevents their undesirable fragmentation; arranged settlements create favorable conditions for achieving agreements; partnership is implemented under the terms and conditions of the World Trade Organization (WTO). For China the key point  is the inclusion of the country in the FTAAP and possibility of being its leader.   

The positive decision of the summit is confirmation of creating the common free trade zone in the APR up to 2020 by the member countries. The TPP is supposed to become an economic basis allowing the USA to pursue their interests in the region. Moreover, through implementing the new rules of international trade, reviewing the standards, new approach to the investment activities, the partnership can positively influence the non-member countries.  

Therefore, the establishment of the common FTE in Asia and Latin America, merging the USA and China, is declared at the level of presidents and executives of 21 APR governments. The APEC leaders agreed that further trade and integration processes will be implemented under the WTO rules. The leaders also released the announcement on the WTO role in the liberalization of the world trade. After all, the performance of the agreements will allow to implement the new urbanization policy, support innovations of small and medium businesses, as well as investment in human capital, regional plans of alternative energy sources development and corruption control in the member countries. All this should have positive impact on the APR development.